Korea Won Completes Biggest Monthly Loss Since 1998; Bonds Gain

By Kim Kyoungwha and Judy Chen

Aug. 29 (Bloomberg) -- South Korea's won completed its biggest monthly loss since the Asian financial crisis of 1998 as overseas investors sold local stocks and refiners bought dollars to pay import bills. Government bonds rose.

This month's 7.1 percent decline was the worst since August 1998, when a region wide crisis drove South Korea to the brink of a national default and almost halved the value of the local currency. The won was the worst-performing currency in Asia outside Japan today as the central bank said the current-account balance returned to a deficit last month due to costlier crude- oil prices.

``Demand for the dollar from foreign stock sales and importers is still high,'' said Kim Sung Soon, a dealer at Industrial Bank of Korea in Seoul. ``The market is on the lookout for the government's intervention.''

The won fell 0.7 percent today to 1,089 per dollar as of the 3 p.m. close of trading, according to Seoul Money Brokerage Services Ltd. The currency has fallen 14 percent this year, also the worst performer in Asia.

Attempts by officials to halt the won's slide failed to keep the currency from falling to a 3 1/2-year low of 1,092.50 on Aug. 27. Central banks intervene in currency markets by buying or selling foreign exchange.

Global funds sold more Korean shares than they bought for a ninth day, according to data from the stock exchange. The benchmark Kospi stock index tumbled 7.6 percent this month.

The current account was in deficit by $2.45 billion in July, the largest shortfall in six months, following a surplus of $1.82 billion in June, the Bank of Korea said in Seoul. The current account is the broadest measure of trade, tracking goods, services and investment income.

Bonds Advance

Five-year government bonds gained for a fourth day after Finance Minister Kang Man Soo said inflation is likely to stop accelerating in coming months.

Prices in August ``will stabilize compared with July due to the fall in oil costs,'' Kang said today at a government meeting in Gwacheon. Consumer prices climbed 5.9 percent in July from a year earlier, the fastest increase in almost 10 years. Inflation erodes the purchasing power of the fixed payments from debt.

``Investors jumped in, heartened by the minister's comments on inflation,'' said Yang Jin Mo, a fixed-income strategist at SK Securities Co. in Seoul. ``Some expectations are forming that yields will decline further.''

Bonds erased some of their gains after a government report showed industrial production rose more than economists expected last month. Production grew 9.1 percent from a year earlier, after rising 6.8 percent in June, the statistics office said in Gwacheon. Economists expected a gain of 7.9 percent, according to a Bloomberg News survey.

The yield on the 5.25 percent note due March 2013 fell 1 basis point to 5.84 percent, according to Korea Exchange. The price rose 0.09, or 9 won per 10,000 won face amount, to 100.14. A basis point is 0.01 percentage point.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net; Judy Chen in Shanghai at xchen45@bloomberg.net.